Bank Of America Case Study Solution
Introduction
The case is about the Bank of America which almost collapsed due to the impact of the financial crises in the year 2007-2008. The Bank was in financial crises where it was unable to run its financial institution. But due to the help of the U.S federal government who provided the loan of $25 billion and also the Troubled Asset Relief Program (TARP) who issued the loan of $20 million the bank was saved from being dissolved. The U.S treasury and also the Federal Deposit Insurance Corporation (FDIC) also provided with around $118 billion to survive in its desperate times.
The Bank of America started its financial operations in the year 1874 in town Charlotte, situated in the North Carolina. The Bank of America expanded its business and improved its growth through acquisition of other financial institutions which currently made the bank as the largest bank in America. The main operations of the Bank were conducted from two areas of which one was from North Carolina, and the other place was in San Francisco. The bank purchased several of its banking competitors such as American Trust Company, Securities National Bank and many other institutes which made the Bank of America the largest bank of the south, having assets of $284 billion. The origination of the name Bank of America came into being when it was merged with the Bank of Italy in the year 1930.
Bank of America faced several crises which led to the replacements of CEO and its top management such as the massive loans issued to the third nation in which they were unable to payback, aloan given to a Russian hedging fund bank which had been defaulted. In the year 2005, the bank acquired MBNA around $35 billion which made the bank the major credit card issuer in the United States and abroad. During the Financial crisis in the 2007-2008, almost all of the banks were in bad condition on which most of them even dissolved. While the Bank of America started to recover after the recession, it took certain measures for the recovery such as its acquisition of Merrill Lynch. The acquisition led to avarious crisis such as shareholders questioning about the bonus pool paid to Merrill Lynch despites the bank’s losses.
Identification of Key Strategic Issues and Problems
Issues on Corporate Governance due to acquisition of Merrill Lynch
The key strategic issues and problems which were faced by the Bank of America were due to the problems created by the Bank of America Acquiring Merrill Lynch at the time of crises cleanup. The problems which occurred due to the acquisition of Merrill Lynch are done through internal and external analysis:
Internal analysis
Looking at the issues of the acquisition of Merrill Lynch and the problem it caused on the corporate governance internally, the issues were:
- Bank of America misled the shareholders for not disclosing the information regarding the agreement between Merrill Lynch and Bank of America
- Bank of America denied that it did not do any wrong doings such as releasing the statement for large bonus pool paid to Merrill Lynch
- Large bonus needed to pay to the Merrill Lynch around $3.6 million for the approval of merger
- The Bank of America agreed to settle $150 million who were harmed by the disclosure violation and also would improve the corporate governance to cover the cost of its litigation.
External Analysis
Looking at the issues of the acquisition of Merrill Lynch and the problem it caused on the corporate governance externally, the issues were:
- This bonus paid to the Merrill Lynch was being questioned by the shareholders as the bank of America paid the bonus despite its losses
- The SEC filed cases regarding the agreement of Merrill Lynch and Bank of America.
- As the CEO of the Bank of America, it is his rights to inform the shareholders about the conditions regarding the acquisition of Merrill Lynch
- This also applies to the CEO of Merrill Lynch John Thain who also misled shareholders about the losses of the company and the bonus being paid.
BANK OF AMERICA Harvard Case Solution & Analysis
Other Issues
The other issues which the company was facing were:
- Unable to pay back the TARP funds while its competitors such as JP Morgan Chase and Morgan Stanley were able to pay back and put the crises behind them.
- Fighting and paying the Freddie Mac and Fannie Mac for resolving the claims which the Countrywide had purchased from.
- The Federal Reserve was in the process of withdrawing from one Bank of America subsidies while the Bank of America was in the middle of paying $25 billion to TARP which would lead to the weak cash position.
The other bad strategic approach which was taken by the Bank of America was the acquisition of a leading mortgage firm by the name of Countrywide Financial. The problem which the acquisition caused are.........................
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